In Designing Substantive Audit Procedures for Tests of Transactions for Sales

question 63

Essay

In designing substantive audit procedures for tests of transactions for sales, the auditor needs to test for evidence of misstatements due to errors or fraud. Describe two potential errors (unintentional) and one intentional (fraud).

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Definitions:

Net Working Capital

The variance between an organization's immediate assets and its short-term obligations, reflecting its short-term fiscal well-being.

Straight-Line Depreciation

A method of evenly distributing the cost of a tangible asset over its useful life, resulting in a fixed annual depreciation expense.

Required Rate Of Return

The minimum annual percentage earned by an investment that will induce individuals or companies to put money into a particular project or investment.

Tax Rate

The percentage rate at which the government taxes an individual’s or corporation’s income.